The overall liquidity in the banking system has been in surplus for more than three months, the CARE liquidity report said.
The non-food credit growth in the banking system fell to a near two-year low of 9.2% year-on-year (y-o-y) during the fortnight ended September 13, 2019, as per Reserve Bank of India (RBI) data. During the comparable fortnight a year ago, the non-food credit growth stood at 13.61%.
According to provisional data released by the central bank, outstanding loans to companies and individuals stood at Rs 96.36 lakh crore on September 13, increased from Rs 96.18 lakh crore at the end of the previous fortnight.
However, deposit growth in the banking system saw a slight improvement in the same fortnight. Deposits with the banks grew by 10.02% y-o-y to Rs 127.22 lakh crore in the fortnight ended on September 13, up from 9.73% in the previous fortnight. During the comparable fortnight of 2018, deposits with banks had grown by 8.59%. The credit deposit (CD) ratio for the fortnight stood at 75.74%, a slight increase from the previous fortnight.
Despite the surplus liquidity prevailing in the banking system during the fortnight, according to data from CARE Ratings, credit growth, which usually stays higher than the deposit growth fell below the latter in the fortnight ended September 13, 2019. The overall liquidity in the banking system has been in surplus for more than three months, the CARE liquidity report said.
It is noteworthy that credit growth has been trending down even as lending rates of banks fell during the year following rate cuts by the RBI. Analysts expect credit offtake to slip further as a result of the government’s decision to merge 10 public-sector banks (PSBs) into four. In a recent note, investment bank Jefferies wrote, “In the near-term, as these banks go through the merger process, a significant proportion of management and employee bandwidth is likely to get diverted away from growth and resolutions and could be a drag on overall environment which is starved on smooth liquidity flow. These 10 banks roughly account for 23% of overall credit in the banking system.”
Bankers, however, are more hopeful of credit offtake picking up in the second half of FY20. Corporate loan growth is likely to pick up from October due to the sharp cut in corporate tax rates and festive season sales, State Bank of India’s (SBI) deputy managing director Sujit Kumar Varma said on Friday.